Question

Topic: Customer Behavior

Purchase Two Backpacks Get A $20 Gift Card

Posted by Anonymous on 4/15/2005 at 4:07 PM ET 2750 Points
The retailer wants to run this promotion.
"Buy two JanSport backpacks and get a gift card worth $.... "

Two backpacks will cost a minimum of $50. The customer must send in a self addressed return envelope along with a copy of their receipt.

The promotion will run for two weeks.

Now here's the question. What will the redemption rate be on a $10 gift card vs a $20 gift card?
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  • Posted by Chris Blackman on 4/15/2005 at 7:26 PM Member
    Predicting redemption rates can be pure guesswork unless you have a statistically relevant database upon which you can base your predictions.

    - Has this retailer done this kind of promotion before?
    - What were the key features of the promotion?
    - What happened?
    - Why?

    A recent Australian Coca-Cola promotion comes to mind, where they offered a radio or disc player free for consumers bringing 12x 1 litre Coke-bottle labels into a particular music-store chain.

    They were deluged, and the premium value-add promotion turned into a nightmare as they battled bad PR caused by irate consumers who felt "dudded". They had to get tens of thousands more units made and distributed to satisfy the backlash.

    If those guys can't get that kind of prediction right, what chance does your back-to-school retailer have?

    Well, plenty if they have done this kind of thing before. But a lot less if they haven't, or if they didn't keep good records of what happened before.

    My advice is this:

    1. Bank on a high redemption rate and build that into the cost and margin calculations.
    2. Set any discounted price accordingly.
    3. Remember the $20 voucher doesn't necessarily COST the retailer $20. When the voucher is redeemed against a $20 item with a 40% margin, the true cost is only $12. The redeemed voucher will almost certainly be used for something the consumer would not have otherwise purchased.
    4. Be prepared for a price war with other nearby backpack retailers.

    Hope this helps.

    ChrisB
  • Posted by Chris Blackman on 4/16/2005 at 5:30 AM Accepted
    mf

    I have no doubt the redemption rate will be higher for the $20 certificate than for the $10 certificate, simply because the value is higher will persuade more people to overcome their apathy and post in the receipt.

    If the certificates are being paid for by the co-op fund then by all means try to get the retailer to provide them at an average cost as opposed to full face value (price to you). Tell them it's policy! The retailer should also see a customer coming back with a $20 voucher to redeem for goods as a great opportunity to sell-up to a higher priced item, and they will be making full margin on the difference between the up-sold sale value and the voucher value! And, this may be a sale they would otherwise never have got!

    I would have no fear about length of voucher validity. When you think about it, if you are happy to give a voucher for $20 today, why worry about the likelihood of redemption in 10 years time? So long as there is no opportunity for counterfeiting of vouchers you and the retailer should have no problem.

    My personal experience is that redemption falls off exponentially with time. Probably around 60% of vouchers you issue today will be used in the first three months, 30% in the first year, the balance just disappear. They get washed, put in the garbage and generally forgotten.

    It would be great to get the retailer to report back monthly on voucher transactions, declaring how many vouchers were redeemed, what the actual sale value was, and their average margin on the overall transaction. That way, you can develop a solid case study to determine the effectiveness of the promotion for use in the future.

    Hope this helps.

    ChrisB

  • Posted by Chris Blackman on 4/16/2005 at 6:46 AM Member
    mf

    Remember, your voucher already has a perceived value of its face value but costs (say) only 60% of that value, allows the user to choose whatever they want, and might never get cashed in...

    The whole purpose of the promotion (as I understand it) is to sell as many backpacks as the market can absorb at these prices and with this deal, isn't it?

    ChrisB
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